During the lifetime of your self-storage business, its likely a facility owner will experience property damage, a liability claim or another type of loss that may create a significant financial impact to his bottom line if he's not adequately insured. This article highlights coverages a self-storage owner should consider when choosing an insurance program.

Feb 09, 2010

Insurance is often an overlooked investment. But during the lifetime of your self-storage business, it’s likely you will experience property damage, a liability claim or another type of loss that may create a significant financial impact to your bottom line if you’re not adequately insured. In this article, you’ll find highlights of coverages you should pay special attention to when choosing an insurance program.

Your self-storage operation involves technical, legal and financial aspects not typically found in other businesses. Some of the exposures you face are unique to the industry, and you should seek customized coverage for your distinctive needs. Insurance specialists can provide you with programs and industry knowledge to assist you in tackling special facility requirements.

Standard policies may provide coverage for your building, business-personal property and business liability. A self-storage policy typically offers those basic coverages plus protection against hazards that only surface in our industry. Following is an explanation of two of these vital coverages.

Customers’ Goods Legal Liability

During the course of your business, you act as a landlord, but you do not take possession of tenants’ property. You’re not responsible for those items, as you’re simply renting space. However, situations may arise in which you might be considered negligent, creating a potential legal liability. For example, a tenant’s goods might appear to be damaged from intrusive water. If you haven’t properly maintained your roof, you might be considered negligent and become liable for damages.

Customers’ goods legal liability would be the appropriate coverage for this kind of claim. Defense costs may also be included, even if the claim is found to be groundless, false or fraudulent. This coverage might also provide for damage done to customers’ goods stored in the open. This coverage isn’t available with most standard business owner’s policies, but is available through a self-storage insurance program.

Sale and Disposal Legal Liability

Almost every self-storage owner will face the unenviable task of evicting a tenant for failure to pay rent, reclaiming the storage space and removing or disposing of the tenant’s property. Sale and disposal legal liability provides protection against conversion—the act of wrongly taking, selling, using or destroying the goods of another party.

Most states have specific statutes that govern the sale and disposal of tenant property, commonly called lien laws. It’s vitally important to be aware of these statutes and state-specific procedures. If there’s an error in any step of the process, the self-storage operator becomes vulnerable to lawsuits claiming loss or damage to stored property. Due to the incredible diversity of goods stored and the wide range of property values, the penalty for conversion can be extremely high.

A basic risk-management technique is to carry adequate limits of sale and disposal legal liability, which would transfer exposure from you to an insurance company that specializes in these types of claims. Additionally, the coverage normally provides legal defense, even when the suit is found groundless or fraudulent.

Practical Protection Measures

Because it’s likely that you or your staff may be directly involved in the sale and disposal process, it’s imperative that you’re all familiar with the applicable lien laws. Consult with an attorney about preparing a thorough written procedure outlining the exact steps for disposing of a delinquent tenant’s property. Make sure your rental agreement contains verbiage regarding state statutes as well.

All of this can be accomplished with a regularly scheduled visit with your attorney. State statutes do change, so consider scheduling a review to confirm that all applicable statutes and procedures are accessible to staff and up to date.

To avoid errors, always double check names and addresses. Don’t take changes to information pertaining to the rental agreement, such as misspellings, no matter how obvious, unless accompanied by a signed change request. Also, document in photographs and writing every step of the inventory and auction process. In a lawsuit, you’ll be required to prove that the disposal of a tenant’s goods conformed to the state statute.

If there’s ever any question about whether you should sell or dispose of property, don’t do it. Many owners prefer to let tenants retrieve their property at no charge rather than experience the potential liability of an auction.

Finally, no matter what precautions you may take to avoid litigation associated with the sale and disposal of a delinquent tenant’s goods, errors may occur. Ensure that you work with an experienced insurance agency to create a specialized program to allow you to reduce the potential for financial loss to your business.

This coverage is industry-specific and generally cannot be added to the typical business owners’ policy. When weighed against the often substantial cost of legal fees and other expenses, the comparative cost is quite reasonable for the peace of mind and protection you’ll receive.

If you’re new to the industry, consider contacting your state self-storage association for insurance information and referrals. The national association is a great resource if your state doesn’t have its own organization. Also, refer to industry trade magazines; they will more than likely have information regarding insurance programs.

Randy Tipton is the owner of Universal Insurance Facilities Ltd., which has provided specialized insurance coverage to the self-storage industry for more than 12 years. Universal has clients in 49 states, with a commitment to providing A-plus-rated service; fast, fair claims handling at an affordable premium; and agents trained specifically in self-storage. For more information, call 800.844.2101; e-mail [email protected]; visit www.uistorage.com.